501 (c) Groups Emerge as Big Players Alongside 527s

Independent soft money groups, -- organizations that spend unlimited
contributions in elections -- are playing significant roles in 2008’s
federal races. According to incomplete official and unofficial reports
analyzed by CFI, federally oriented 527 and 501(c) groups have already
collected or spent around $350 million and are on course to top $400
million. While 527 fundraising is down from its record 2004 total (but
up from 2006), much of the gap has been closed by increased election
activity on the part of 501 (c) groups.

Soft money groups are mainly concentrating on a few
dozen competitive races for the Senate and House, although some are
also targeting the presidential election. The cumulative weight of such
focused spending can be quite important in a tightly contested
election. For example, a September 25th story in the Denver Post
indicated that a range of non-party soft money groups had already spent
$13.8 million on ads in the hot Senate race in Colorado: $10.4 million
on the Republican side and $3.4 million on the Democratic one. In this
case, their assistance to the Republican candidate was roughly equal to
the sum of his own campaign receipts and his party’s independent
expenditures on his behalf. And according to the October 28th Washington Post, the Republican incumbent in the close
Senate race in Oregon has benefited from about $6 million in TV ads run
by three soft money groups. This is more than he has received from his
own party committee [See CFI's analysis of Senate Fundraising].

527s

Among these soft money groups, federally focused 527 political
organizations had collected $185 million through October 15 (See Table 1).
While this figure is well below the $338 million gathered by similar
527s at this point in the 2004 election cycle, it is already far in
excess of the $117 million such groups raised during the entire 2006
cycle. Furthermore, it appears a large part of the gap with 2004 is
being closed by increased activity by 501 (c) groups.

Regarding the 527s, a number of CFI findings which depart from the conventional wisdom:

Despite
the notoriety of the pro-Republican Swift Boat Veterans and POWs for
Truth 527 operation in 2004, Democratic-oriented 527s held a nearly 3-1
financial advantage over Republican-oriented ones in that election
cycle, and they do so again in this one.

Observers often look at 527 groups as completely independent organizations. However
Table 1
shows that organizations collecting most of the money are connected to
related Political Action Committees or associated with potential
candidates and party committees that are themselves subject to more
intensive regulation by the Federal Election Commission. In addition,
many important 527s are steered or mainly financed by groups with PACs
(e.g. the pro-Democratic America Votes, Change to Win and Patriot
Majority groups). Other 527s may lack such associations but are largely
funded and driven by major individual donors to candidates and parties
(e.g. Rightchange.com on the Republican side and Bring Back Ohio on the
Democratic side).

Many news reports on
527s focus on their TV and radio ads, behavior that is relatively easy
to measure from the outside, particularly shortly before elections. But
these accounts often ignore the important, under the radar “ground war”
waged through mail, phone, e-mail, and canvassing. For example, two of
the five top Democratic-oriented groups, America Votes (and Friends of
America Votes) and Change to Win focus on the ground war as does the
2nd most important Republican one, the College Republican National
Committee.

It is frequently noted that
this year’s federally focused 527s are much less involved in
presidential politics than they were in 2004. At least part of the
explanation lies in the political circumstances surrounding the
presidential election. The major impetus for expanded 527 fundraising
in 2004 was Democrats’ fears of being outspent by George W. Bush in the
presidential contest. Those fears have been obviated by Barack Obama’s
fundraising success. And while John McCain would certainly benefit from
greater 527 activity on his behalf, his attractiveness to large 527
donors appears to have been diminished by his reformist opposition to
independent soft money groups (not to mention his lagging campaign
prospects). Although the FEC’s post 2004 enforcement actions against
527s have made them jump through new legal hoops, dampening their
appeal somewhat, their strong performance in relation to 2006 indicates
that they remain viable and important instruments of political action.

501(c) s

Beyond 527s, the big story about outside groups in this election is the
large scale of activity by 501(c) (4) advocacy groups and 501(c) (6)
business leagues, a big step up from the last two elections. [For a
review of key groups’ activities in 2004 and 2006 see— "Soft Money in the 2006 Election and the Outlook for 2008: The Changing Nonprofits Landscape"]
Under the law, 501(c) s can do everything 527cs can in elections as
long as “partisan campaign activity,” defined by IRS rulings, does not
become their “primary” function. And unlike 527s they can expressly
advocate for the election or defeat of a candidate provided no
corporate or union money is involved. In contrast to 527s, the 501(c) s
are required to report only a limited portion of their political
expenditures to the IRS and FEC. Most important, they generally do not
have to reveal specific information about their contributions and those
making them.

Based on limited 501(c) group official reporting,
self-descriptions of activities completed or planned by the groups, and
press coverage of their activities, it is reasonably clear that these
organizations are on course to spend somewhere in the range of $200
million this cycle on activities that arguably fall under the IRS
definition of campaign activity or are close enough (e.g. they are
reported to the FEC as “electioneering communications”) to influence
elections. This estimate is based on evidence, discussed below, that
the main groups alone (those with at least $2 million programs) have
already spent around $165 million, and the spending cycle is not yet
complete. Thus 501(c) s have emerged as vehicles of unlimited soft
money spending in elections that are now comparable in size to 527s.

Table 2
presents information concerning the election-influencing activities of
17 501(c) s known to have spent at least $2 million thus far in the
election cycle. While only a subset of these groups’ political spending
is officially reported to the FEC (namely TV and radio” electioneering
communications” mentioning candidates shortly before the election and
“vote for, vote against” type Independent Expenditures), the totality
of available information indicates that the 501(c) s profiled in the
table are spending around $165 million or more on the 2008 elections.
And this does not include any spending between now and the end of the
year that has not yet occurred or been publicly referred to as planned.
Nor does it include spending by numerous organizations that are active
but are not yet known to have topped the $2 million mark. These include
groups like Campaign to Defend America, Americans United for Change and
Common Sense Inc. which were active early in the primary season and
such current actors as the National Right to Life Committee, Sierra
Club, the American Energy Alliance, Americans for Prosperity, America’s
Majority, Susan B. Anthony List, Alliance for a Better Minnesota,
Louisiana Conservative Action Network, and so on.

Table 2
indicates that the great majority of spending by 501cs is on behalf of
Republican candidates. This acts to counterbalance the opposite
tendency of 527 spending.

“Grass Roots Lobbying” and Elections

Many 501(c) s emphasize that their activities referring to candidates
during elections are not intended to influence voting but are only a
continuation of their “grass roots lobbying” to rouse constituencies
around specific legislative issues. (This argument is sometimes
weakened when a group’s communications refer to a candidate’s past
votes rather than pending legislation). A real world basis for further
discussion of this argument is provided by the recent election
activities of four major groups that have been heavily engaged in
important and pending legislative initiatives. Together, it appears
from the data on these four organizations in Table 2 that they could spend as much as almost $70 million during this election year.

America’s
Agenda: Health Care for Kids, a new group, has spent over $13 million
since mid-September on TV ads thanking 13 House Democrats and one House
Republican who are in close races, 9 Senate Democrats in easy ones, two
threatened Senate Republican incumbents, and two influential Senate
Democrats who are not candidates, for their support for reauthorization
of the State Child Insurance Health Program (SCHIP). The ads urged the
legislators to keep on fighting to insure kids. The legislation in
question would have greatly expanded the SCHIP program, but it failed
when the House of Representatives was unable to override a presidential
veto in January 2008.

All of the
funding for the thank you ads was provided by PHARMA (the
pharmaceutical industry’s trade association) which had publicly
advocated for SCHIP, but without any specific preference for the Bush
administration’s or the Democratic-controlled Congress’s versions. CFI
was informed by an “America’s Agenda” representative that the ads run
during the lead up to the congressional elections because the bill
could come up either in September or during a subsequent lame duck
session. He said that the specific members of congress thanked were
those who had voted to override the president’s veto but were “under
political pressure” to change their votes and needed grass roots
support to maintain their positions. Any help provided by the ads to
the candidates’ campaigns was “coincidental.” However, a key House
Democratic aide and a journalist who has covered the issue extensively
both emphasized that (1) a House Democratic leadership decision not to
take the bill up before the election was reached and publicly discussed
several days before the first ads ran, and (2) House and Senate
Democrats’ steadfastness in a future vote was not in doubt; the real
“swing votes” were those of House Republicans, nearly a quarter of whom
had already voted to override the president. It appears that PHARMA’s
sponsorship of and support for the ads that targeted overwhelmingly
Democratic candidates was more related to ongoing industry efforts to
adapt to a more Democratic Congress and ingratiate itself with its
leaders who will have increased clout over other, industry-specific
issues. Drug industry PAC donations are being changed this cycle to be
more even-handed to Democrats. Providing election time assistance to
two dozen Democratic candidates is likely another way to fulfill the
industry’s goal.

Two groups, the
Coalition for a Democratic Workplace (CDW) and Employee Freedom Action
Committee (EFAC), have indicated that they are spending up to $20 and
$30 million, respectively, during this election to defeat legislation
that would provide workers with an alternative “card check” option to
secret ballot election for determining union representation. A bill to
that effect passed the House, but failed to surmount a Republican-led
Senate filibuster in June 2007. CDW, a coalition of the U.S. Chamber of
Commerce and other business associations, conducted grass roots
lobbying in a variety of congressional districts and states in early
2007. But more recently it has run or plans to run TV ads targeting six
competitive Senate races. Comparing the candidates’ positions on the
“card check” issue, the ads feature an actor who played a mobster on
the popular “Sopranos” television series. Here he portrays a union boss
who installs a cutout figure of the Democratic candidate and removes
one of the Republican one while the narrator explains the candidates’
different stands. CDW has also announced a direct mail program reaching
two million households in the same six states.

EFAC was formed only about a year ago. A well known lobbyist for
corporate causes heads it. In recent months, according to a
spokesperson, it has produced television, radio and print advertising
in ten or eleven states with competitive Senate races as well as a
national ad featuring former Democratic Presidential nominee George
McGovern. Asked why only candidates in tough Senate races are being
targeted, the EFAC representative explained, “Politicians listen when
they are running for office,” noting that one Democratic candidate
appeared to have softened somewhat his position on the issue. On the
other hand, the implication can also be that politicians who risk
defeat listen more. Candidates and voters during elections may well
perceive this targeted issue advertising as aimed at defeating the
candidate. It is unlikely to have escaped a group like EFAC that
defeating an opponent is just as good as changing his or her mind.

American Rights to Work is a five year old
labor and progressive- sponsored group concerned with “workplace
democracy”. Beginning in September, it launched a cable television ad
campaign in support of the card check legislation. This projected $5
million effort included a national ad as well as advertising targeting
eight states with vulnerable Republican Senators or candidates. The ad
portrayed a corporate CEO tilting a see saw in his favor to the
detriment of a worker -- and enjoying it. The ad asks viewers to call
the Republican to tell him to “stop siding with wealthy CEOs over
working families.” A group spokesperson acknowledged that the ads exist
in a “gray area” between lobbying and electioneering, and observed that
the purpose of the ads is to “combat” those launched by the above
groups, which he said were aimed at “defeating Democrats.”

Donors

While information about donors to 501(c) s is largely unavailable (see
above), we do know about contributions to 527s. Thus far, about half of
gross donations ($105 million) gave come from labor unions and the next
largest chunk ($68 million) from $5,000+ individual donors. Table 3 provides a list of $100,000 or over donors and their contributions.

Concluding Note

From the current vantage point, it is likely that when this election
season is done, over $400 million will have been collected and spent by
outside soft money groups, about half by 527s and half by 501 (c) (4) s
and (6) s. The size of this concentrated cache of unlimited donations
raises many legal and policy questions that cannot be pursued in this
piece but will be the subject of further discussion by CFI and others
in the future.

This report was written and researched by Steve Weissman and Suraj Sazawal.